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ACS: 1H’20 RESULTS (ANÁLISIS BANCO SABADELL)

2Q'20 vs. 2Q'19 Results
Sales: € 8.784 Bn (-8.1% vs. -9.5% BS(e) and -21.1% consensus);
EBITDA: € 594.0 M (-25.9% vs. -30.7% BS(e) and -29.4% consensus);
EBIT: € 368.0 M (-38.4% vs. -46.1% BS(e) and -54.9% consensus);
Net Profit: € 160.0 M (-33.6% vs. -58.1% BS(e) and -43.2% consensus).
1H'20 vs. 1H'19 Results
Sales: € 18.337 Bn (-2.6% vs. -3.3% BS(e) and -9.2% consensus);
EBITDA: € 1.345 Bn (-17.0% vs. -19.4% BS(e) and -18.8% consensus);
EBIT: € 859.0 M (-21.8% vs. -26.0% BS(e) and -30.8% consensus);
Net Profit: € 361.0 M (-31.0% vs. -42.3% BS(e) and -35.4% consensus).

Save for Abertis (already known; 13% of our T.P.) and Services (expected; 2% of our T.P.), the company’s 1H’20 results came in slightly above expectations, showing a moderate impact from Covid-19. Thus, sales came in +1% above our estimate (+7% vs. consensus; although this would not be especially significant) and EBITDA +3% (+2% vs. consensus), showing a -17% drop that would be due mainly to the smaller contribution from Abertis (€-45 M vs. € 130 M in the 1H’19). Excluding this effect, the drop would have been -7% and the EBITDA margin (excl. Abertis) would have been reduced only by -30bps (less than expected; -50bps BS(e)) vs. 1H’19 due to the impact from Services (3% of EBITDA’19), as Dragados’ and Industrial Services’ margins remained stable. Net Profit came in at € 361 M (-31% vs. 1H’19), +20% above our estimate (+7% above the consensus), which would be due mainly to higher EBITDA than expected and lower amortisation levels.
FCF was negatively affected by payments linked to BICC (€-810 M, already known) and working capital adjusted for factoring (which is reduced by €-215 M), which means a cash outflow of €~-1.38 Bn, as was to be expected given the business’ seasonal nature (€~-1.28 Bn in 1H’19), and some deterioration due to Covid-19 (which we already expected, especially following Hochtief’s results presentation). In this regard, for the time being, the deterioration of working capital is still far from the €-700 M drop (€~-100 M in 1H’20) assumed in our estimates for the full year vs 2019. Thus, NFD (excl. IFRS 16 and factoring) came in at € 2.69 Bn (€ 725 M in the 1H’19/NFD/EBITDA of 0.9x/2.0x including IFRS 16 and factoring), negatively impacted by €+676 M due to the repurchase of ACS’, Hochtief’s and CIMIC’s shares.
The backlog is reduced by -1%, with order intake totalling €~16.95 Bn, which means a BtB ratio of 0.9x (0.8x excluding the impact from the integration of Broadspectrum), which we believe would be affected by delays in the awardings as a result of Covid-19 (as expected). In any case, the company’s pipeline totals € 230 Bn in PPPs and 6 Gw in energy projects (in line with last quarter).
Lastly, coinciding with its results presentation, the company has announced it will cancel 4 M of treasury shares (1.3% of the share capital; which is not surprising), extending the current share buyback programme until 31 July 2022 (vs. 31 March 2021 previously) and increasing it by the same amount of shares cancelled in the scrip dividend and the number of shares now cancelled (to a maximum of 6.99% of the share capital, representing € 650 M; in line with the conditions of the previous programme).
In our view, this set of results shows the resilience of ACS’ business, which has not been significantly affected by the Covid-19 crisis (except for Abertis and Services). Considering that the results came in slightly above expectations on the P&L statement level and very much in line in terms of cash generation, the market reaction should be neutral or slightly positive. The stock has performed in line with IBEX since February’s highs (before the impact from Covid-19 began to be felt) and is outperforming the index by +70% after rallying from March’s lows (even hitting a closing price of € 11.45/sh.), which might be one of the reasons behind today’s -2.4% drop vs. IBEX. BUY. T.P. € 29.19/sh. (+35.64% upside).